What does a gas pipeline in Europe have to do with your mortgage rate in Canada? More than you might think. This week, as the European Union pushes forward with a plan to cut off Russian gas imports by 2026, global energy markets—and by extension, inflation—are reacting. And when inflation rises, so do the interest rates that affect everything from home buying to refinancing in Canada. It’s a timely reminder that real estate isn’t just influenced by what’s local—it’s part of a much larger, more connected world.
The EU’s Energy Pivot and Global Inflation Pressure
In an effort to disconnect from Russian fossil fuels, the European Union announced plans to phase out all Russian natural gas by 2027, with liquefied natural gas being cut off a year earlier. It’s a bold move designed to eliminate economic dependencies tied to political conflict. But there’s a ripple effect. The scramble to find alternative energy sources could send energy prices skyward—and that trickles down into the general cost of living across the globe.
For Canadians, this matters. Energy costs are a key driver of Canadian inflation, and the Bank of Canada (BoC) watches inflation very closely when making interest rate decisions. If global energy prices spike in response to Europe’s transition, Canadian inflation may stay elevated longer than expected. And when inflation stays hot, mortgage rates —especially fixed rates—often follow suit.
Mortgage Rates: Why Global Markets Matter
Most Canadian fixed mortgage rates are influenced by global bond markets, particularly the yield on Canadian government bonds. These yields go up when investors expect inflation to keep climbing. So from a practical standpoint, sky-high European energy prices can lead global investors to demand higher yields, pushing up borrowing costs for Canadian lenders—which are then passed on to homebuyers and homeowners.
We’ve already seen Canadian bond yields become increasingly volatile in 2024. If energy inflation pushes yields higher, fixed mortgage rates could see another uptick. According to the latest data from the Bank of Canada, mortgage providers are already bracing for continued uncertainty in the global market. It’s another reason why those with variable-rate mortgages may want to assess their risk exposure in the months ahead.
Housing Market Implications in Canada
More Canadians are paying close attention to interest rates these days because of what they mean for affordability. In a softening real estate market where price growth has slowed in major cities like Toronto and Vancouver, even a half-point increase in rates can significantly impact borrowing power.
The Canadian Real Estate Association (CREA) recently reported a 1.9% decline in national home sales in April compared to the prior month, suggesting that uncertainty is already affecting consumer behaviour. Buyers are waiting for stabilization, but if borrowing costs rise instead, that wait could grow longer. For current homeowners looking to refinance or get a HELOC, timing becomes critical. Locking in a good rate now could look like a smart move in a few months.
How Homeowners Should React
We’re not saying European gas decisions will single-handedly push Canadian mortgages higher—but they’re part of a complex web of global forces that everyone with a mortgage should care about. Savvy homeowners should keep a close eye on geopolitical shifts and inflation updates. If you’re on a variable rate and worried about possible hikes, you might want to explore refinancing. If you’re house hunting, understanding where interest rates might head next is just as important as finding the right neighbourhood.
And don’t overlook opportunities some people miss. For example, those nearing retirement might consider tapping into their home equity through a reverse mortgage to add financial flexibility without selling their home. With rates in flux, discussing your goals with a knowledgeable broker can help you make informed choices that line up with market realities.
In the meantime, you can run your own scenarios with our mortgage calculator to see how different rates could affect your monthly payments. It’s a small step that could make a big difference in keeping your budget on track.
Final Thoughts
It may sound far-fetched, but the EU trying to break its energy ties with Russia could end up heating up your Canadian mortgage. Global inflation, fuelled by energy realignment, affects everyone—and so does the cost of borrowing. For homeowners and buyers alike, now is the time to stay informed and proactive. Understand your options and work with someone who can help you navigate this tricky climate. At Unrate, we’re here to provide you with the best mortgage rates available for your situation, not just the ones you see advertised online. Let’s stay ahead of the curve—together.
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